Ruminations of an Israeli-American Venture Capitalist Looking for the Best and Brightest Entrepreneurs

Thursday, December 4, 2008

When Sales & Marketing Becomes Scientific

Sales and marketing roles in Israeli companies are often handed off to the proverbial American exec who talks baseball with customers, and who conducts business on the fairway. This continental division of labor can work, but since most start-ups succeed or fail on their sales execution, it’s a real handicap for Israeli entrepreneurs. The reluctance to emphasize sales and marketing stems from an over reliance on technology innovation and a cultural divide between Americans and Israelis, the latter of which feel less proficient at the podium or with the pen. Demanding more emphasis on sales and marketing in the early stages from Israeli entrepreneurs is easier said than done, but there is good news at least for aspiring web and software entrepreneurs as the Internet can bridge this gap.

One of the less celebrated transformations in the Web over the last three to four years is emergence of several robust methods for marketing and selling online. In particular, the search-based advertising revenue model of Google has fostered a entire economic system, and spawned essential web business terms such as SEO(search engine optimization) and SEM (search engine marketing). Good SEO work at inception can result in free marketing on Google/Yahoo!, while smart SEM can provide for a consistent way to profitably acquire customers. Beyond the business of search, it is important to understand that Web businesses with a clear value assigned to each customer are generally willing to pay third party affiliates a bounty on each lead they bring to the business. Such lead generation methods based on CPA offer an attractive way to build a business without resorting to longtail advertising.

As a result of the above, online sales and marketing increasingly look like more of a science than an art, making these disciplines more accessible to the programmer situated far away from his customers. This is a godsend for the quintessential Israeli engineer, who might have business sense, but who still doesn’t relish the idea of direct customer interaction. Some Israeli software entrepreneurs have embraced Internet marketing and sales, but not as much as one would expect. Too many Israeli web start-ups are stuck in the old model of competing for eyeballs…a notion that says a great product will generate traffic growth will which in turn bring advertisers. This can work, but is exceedingly difficult to build scale, and often requires larger upfront investment. It also renders affiliates and search engine marketing, ineffective or irrelevant.

With the recession in full swing, I expect to see a move away from ad-based revenue models and more Israeli entrepreneurs launching “smart” web businesses that use SEO, SEM and affiliate marketing techniques. I also expect to see more software companies utilizing the web to market, sell and distribute products online, rather than a traditional sales model of sales reps in the field. Assuming the company has a subscription/service or product sale business, one may even find user acquisition costs declining as advertisers cut back on spending. In short, entrepreneurs who can master the business of the web can rapidly build a profitable business with minimal investment.

It starts with a proper understanding of SEO, which may determine changes to the product spec and definition. SEO should not be an afterthought, once the product is ready, but part of a market survey before starting development. Secondly, it requires a viable revenue model based on more than advertising, such as subscriptions services, online sales or lead generation. And once a lifetime value can be assigned to customers, it requires strong unit economics around online customer acquisition. And if you really care about this last point, you will actually research things like PPC economics around the hundreds of keywords relevant to your product/service.

Have no doubt about it, online marketing and sales talent exists in Israel. Unfortunately, it is cultivated and concentrated in dubious, yet highly profitable market segments such as online gambling, adult content, and forex trading. These individuals understand and appreciate the unit economics of a strong online business model, including SEM, lead generation and affiliate networks. I have already seen individuals with these skill sets entering the mainstream start-up community, but unfortunately, there are not yet enough entrepreneurs savvy enough to grab them or learn from them.

These days, a good business does not start with a patent, but smart utilization of web business techniques at inception stage. We are in a new economic reality, where capital efficiency trumps even product innovation. For those entrepreneurs ready to embrace a different mode of thought, the web offers truly efficient way to reach and acquire customers.

Bessemer Blogs

StatCounter

Update Your Followers About My Blog

The thoughts and opinions expressed herein belong to the author and do not necessarily reflect those of Bessemer Venture Partners or any of its affiliates (“Bessemer”). The material here is written on the author’s own time for [his/her] own reasons and Bessemer has not reviewed or approved the information herein. Any discussion of topics related to Bessemer or its investment activities should not be construed as an official comment of Bessemer.